In the equity market, investments need to be prudently hedged to overcome uncertainties and limit losses related to external shocks. A question that often arises is whether one should resort to a value strategy that seeks discounted stocks or opt for growth investing in times of extreme market instability.

The investing track of the Oracle of Omaha over the past few decades and his gradual shift from being a pure-play value investor to a GARP (growth at a reasonable price) investor might give us all the answers.

Per the GARP theory, the strategic mingling of growth and value-investing principles gives us a hybrid strategy, offering an ideal investment by utilizing the best features of both. What GARPers look for is whether or not the stocks are somewhat undervalued and have solid sustainable growth potential (Investopedia).

Several stocks, which have surged significantly in the recent past, show an overwhelming success of this hybrid investing strategy over pure-play value and growth investments. Here, we will discuss the success of five such stocks. These include Pilgrim's Pride (PPC Quick QuotePPC - Free Report) , H&R Block (HRB Quick QuoteHRB - Free Report) , Paramount Global (PARA Quick QuotePARA - Free Report) , Norwegian Cruise Line (NCLH Quick QuoteNCLH - Free Report) and Tenet Healthcare (THC Quick QuoteTHC - Free Report) .

A Few More Words on GARP

GARP investing gives priority to one of the popular value metrics — the price/earnings growth (PEG) ratio. Although it is categorized under value investing, this strategy follows the principles of both growth and value investing.

The PEG ratio is defined as (Price/ Earnings)/Earnings Growth Rate

It relates the stocks’ P/E ratio with the future earnings growth rates.

While P/E alone gives an idea of stocks that are trading at a discount, PEG, while adding the growth element to it, helps identify stocks with solid future potential.

A lower PEG ratio, preferably less than 1, is always better for GARP investors.

Say for example, if a stock's P/E ratio is 10 and the expected long-term growth rate is 15%, the company's PEG will come down to 0.66, a ratio indicating both undervaluation and future growth potential.

Unfortunately, this ratio is often neglected due to investors' limitations in calculating the future earnings growth rate of a stock.

There are some drawbacks to using the PEG ratio though. It does not consider the very common situation of changing growth rates, such as the forecast of the first three years at a very high growth rate, followed by a sustainable but lower growth rate over the long term.

Hence, PEG-based investing can be even more rewarding if some other relevant parameters are also taken into consideration.

Here are the screening criteria for a winning strategy:

PEG Ratio less than X Industry Median

P/E Ratio (using F1) less than X Industry Median (For more accurate valuation purpose)

Zacks Rank of 1 (Strong Buy) or 2 (Buy) (Whether good market conditions or bad, stocks with a Zacks Rank #1 or #2 have a proven history of success.)

Market Capitalization greater than $1 Billion (This helps us to focus on companies that have strong liquidity.)

Average 20 Day Volume greater than 50,000: A substantial trading volume ensures that the stock is easily tradable.

Percentage Change F1 Earnings Estimate Revisions (4 Weeks) greater than 5%: Upward estimate revisions add to the optimism, suggesting further bullishness.

Value Score of less than or equal to B: Our research shows that stocks with a Value Score of A or B, when combined with a Zacks Rank #1, 2 or 3 (Hold), offer the best upside potential. 

Here are five out of the 20 stocks that qualified the screening:

Pilgrim's Pride: This Greeley, CO-based company is engaged in the processing, production, marketing and distribution of frozen, fresh as well as value-added chicken products. Pilgrim's Pride offers its services in the United States, Mexico, France, the Netherlands, Puerto Rico and Mexico through a number of distributors, retailers and food service operators.

Pilgrim's Pride can also be an impressive value investment pick with its Zacks Rank #1 and a Value Score of A. Apart from a discounted PEG and P/E, the stock has an impressive long-term expected growth rate of 42.1%.

H&R Block: It is a leading provider of tax preparation services. The company provides assisted income tax return preparation, do-it-yourself (DIY) tax solutions and other products and services associated with income tax return preparation in the United States, Canada and Australia. H&R Block's assisted income tax return preparation services are provided through a system of retail offices operated directly by the company or by franchisees.

HRB stock can also be an impressive value investment pick with its Zacks Rank #1 and a Value Score of B. Besides a discounted PEG and P/E, H&R Block has a solid long-term historical growth rate of 15.5%.

Paramount Global: It is a global media, streaming and entertainment provider offering content through well-known brands, including CBS, Showtime Networks, Paramount Pictures, Nickelodeon, MTV, Comedy Central, BET, Paramount+ and Pluto TV. It also operates Paramount Pictures.

Paramount Global stock can be an impressive value investment pick with its Zacks Rank #2 and a Value Score of A. Apart from a discounted PEG and P/E, Paramount Global also has an impressive long-term expected growth rate of 11.6%.

Norwegian Cruise: This Bermuda Limited company is a leading cruise line operator. It owns and operates three brands — Oceania Cruises, Regent Seven Seas Cruises and Norwegian Cruise Line. Norwegian Cruise, founded in 1966, is headquartered in Miami, FL. In a bid to facilitate travel for cruise passengers, the brands strive to provide an enhanced level of onboard service.

Norwegian Cruise has an impressive growth rate of 50.6% for the next five years. The stock currently has a Value Score of A and carries a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Tenet Healthcare: Headquartered in Dallas, TX, Tenet Healthcare is an investor-owned healthcare services company that owns and operates general hospitals and related healthcare facilities for urban and rural communities in numerous states and has offices in California and Florida.

Tenet Healthcare can also be an impressive value investment pick with its Zacks Rank #1 and a Value Score of A. Apart from a discounted PEG and P/E, the stock also has a solid long-term historical growth rate of 30.8%.

You can get the rest of the stocks on this list by signing up now for your 2-week free trial to the Research Wizard and start using this screen in your own trading. Further, you can also create your own strategies and test them first before taking the investment plunge.

The Research Wizard is a great place to begin. It's easy to use. Everything is in plain language. And it's very intuitive. Start your Research Wizard trial today. And the next time you read an economic report, open up the Research Wizard, plug your finds in, and see what gems come out.

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Disclosure: Officers, directors and/or employees of Zacks Investment Research may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material. An affiliated investment advisory firm may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material.

Disclosure: Performance information for Zacks’ portfolios and strategies are available at: https://www.zacks.com/performance.

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